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Permalink Reply by sesport on July 3, 2010 at 0:28

Some of us were discussing that last question just recently. There was a thread going, quite a few different opinions based on individual needs. 80)

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Permalink Reply by adubu on July 3, 2010 at 4:59

GHS---what I have received in mail to buy (should say attempt to STEAL) my royalty is a mutiple of 3 times last 12 months royalty income. However this does not calculate the future full potential of what the total value will be since you may only have one well in unit that HBP your minerals and many more wells and possible other formations may be drilled. For example a shallow well HBP the lease and it be in good play for travis peak, cotton valley sands, bossier/haynesville shale, cotton valley lime, or smackover formations so you have to look at all that possible. If you are in unit that has drilled into deepest zone know to produce in area and their is no other formation in unit to test and it has drilled max # well in spacing then you have ideal what the EUR of the unit of all formation then you have better ideal of value and choice to take money discounted up front. The buyer always look for mutiple of several times investment amount. So if they are investing for bigger return you should look at it in detail and consult with good oil & gas attorney and your CPA before selling--This my opinion-- other knowledgable members please comment. Look at threads on site as sesport recommends

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Permalink Reply by GHS on July 3, 2010 at 5:31

There is already one well on my property that has been taken out of the unit because it blew last year and they are doing nothing with it now, but a second one is projected. They did sesmic studies a few months ago on the property, but said that I can not get the info. One offer was over 25000 per royalty acre and others more, so being not as knowledgable as others, I do not know scam from real and do not know if real is good when it comes to selling. They tell me that it is a good offer and tell me that cash in the hand is better than a gamble, but I guess that is what they should say when they are trying to buy royalties.

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Permalink Reply by Checkmateking on July 3, 2010 at 7:05

Why in the world would you sell a royalty acre for 25000, when just two years ago property in your area was leasing for 25000? There is no gamble in a resource play like the Haynesville, if they tell you this they are liars and you should kick them out of the house. DO NOT SELL!

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Permalink Reply by DJG on July 3, 2010 at 7:39

I can imagine that if they are offering $25K/Acre, it is because their assessment is that the true value in the production from the acreage is SIGNIFICANTLY higher than that amount.

The reasons to sell or not sell are always a personal decision. That said, my own opinion is that any offers that are placed now will be for pennies on the dollar to the true long-term royalty value of the minerals.

Agree with Jeff's opinion below, and would only sell minerals if there was immediate and urgent need for cash today. I.E. if I needed a new kidney or if my bookie had kidnapped my Mother or some equally urgent need - not because it sure would be nice to have a new fishing boat.

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Permalink Reply by DJG on July 3, 2010 at 7:44

GHS,

How many mineral acres do you have and what are the IP rates of some wells nearby to your own land?

Let's plug that info into the royalty calculator Excel spreadsheet that I've put together and it can give you some sense as to what the value of your minerals MIGHT look like over the long-term 20-40 years time that they could be in production.

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Permalink Reply by adubu on July 3, 2010 at 8:13

D. Garr-- for a example and fun--plug in your calculator 82 net acres with 20% r typical 640 a unit and post #s use what you think is avg production IP of wells in the area

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Permalink Reply by DJG on July 3, 2010 at 8:42

Adubu,

I have attached a copy of the spreadsheet in the attached document. I still think that my algorythms used in the excel sheet will over-estimate the projected royalty amount a bit, but it does at least factor in the high decline curves of these HA/BO wells so it is probably somewhat more accurate than any of the other online royalty calculators out there on the internet that significantly over-estimate due to not acounting for high decline properly.

I'm better at guaging the Texas side, as I'm not familiar with IP rates for the varying LA areas.

That said, If you just plug in a pretty conservative 10 mmcfd rate and $5.00 gas - then one has the POTENTIAL to be looking at between $5-$8K per mineral acre owned for EACH well.

Now if the area has multiple-stacked formations (as much of the play does) than it even gets more interesting when you multiple that $5-8K by 5-8 wells per formation by 2x or up to 3x or 4x to account for the multiple formations.

Don't take these numbers to the bank, but it does at least give some counterbalance to consider that some of these areas with multiple formations and high 20+ mmcfd IP and EURs could really be looking at long-term potential in the 6 figure range (per acre) over the 20-40 year long-term production of the acreage.

Attachments:

• RevisedHSBORoyaltyEstimator - Feb 5 2010.xls, 4 MB

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Permalink Reply by Chris Campisi on July 7, 2010 at 8:58

This is one of the better royalty interest calculators I've seen, however I was curious to know why you are not accounting for Severance Tax, Compression and Transportation deductions?

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Permalink Reply by DJG on July 7, 2010 at 9:15

Hey Chris,

If you take a look at the Yellow Fields in the Mineral Owner Variables section in this Excel worksheet there is one field labled as "Discount Rate".

You can add a % amount (i.e. - 5%, 15%, 20%, etc) to that field to account for any pre-royalty deductions assigned to your lease and then that percentage amount is automatically calculated in the the results throughout the worksheet.

A few things to point out regarding the worksheet:

1) I still think there are a few flaws in my algorythyms that end up calculating the royalty a bit higher than would actually be reality. That said, I do feel that it does at least try and factor in the high decline curves we experiance from these wells - 82% +/- in the first year alone, whereas most other online calculators I have seen have unrealistically low decline curves.

2) Keep in mind that the variables (Price of gas, IP Rates, Ultimate EUR's etc) can swing drastically from well to well and in throughout the 20-40 year production life of a unit which makes it difficult to project out with any real degree of accuracy.


That said, look at this calculator (or any other) for entertainment purposes only and don't go making any long-term financial decisions based upon these sort of projections alone!

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Permalink Reply by Jeff on July 3, 2010 at 5:34

The only way i would sell mineral rights or royalty interest is if I had 2 mos to live and no heirs to leave anything and wanted to take a trip around the world. Other wise just don't do it.

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Permalink Reply by Stevew on July 3, 2010 at 11:25

Good advice on selling mineral rights - I would consider it if my child had a deadly disease, but otherwise I've passed on several chances to sell over the years.

I got an offer for $2,000 for about 50 acres just a few weeks before the HS was announced. In the past we went through several periods when we were very poor, but I would not sell because my father (now dead) always told me to hold them.

Land, it's the only thing their not making more of ... wasn't that in Gone With the Wind?

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